Understanding microstructural evolution in Friction Stir Welding (FSW) of steels is essential in order to understand and optimize the process. Ferritic steels undergo an allotropic phase transformation. This makes microstructural evolution study very challenging. An approach based on Electron Backscattered Diffraction (EBSD) and phase transformation orientation relationships is introduced to reconstruct pre-transformed grain structure and texture. Reconstructed pre-transformed and post-transformed grain structures and textures were investigated in order to understand microstructural evolution. Texture results show that there is evidence of shear deformation as well as recrystallization in the reconstructed prior austenite. Room temperature ferrite exhibits well-defined shear deformation texture components. Shear deformation texture in the room temperature microstructure implies that FSW imposes deformation during and after the phase transformation. Prior austenite grain boundary analysis shows that variant selection is governed by interfacial energy. Variants that have near ideal BCC/FCC misorientation relative to their neighboring austenite and near zero misorientation relative to neighboring ferrite are selected. Selection of coinciding variants in transformed prior austenite Σ3 boundaries supports the interfacial-energy-controlled variant selection mechanism.